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Higher Gasoline Fuels Retail Sales; Wachovia Shares Sink

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Stocks put in a mixed-to-lower trade to start the week as investors mull over earnings reports amid weaker economic reports and a weaker-than-expected earnings report out of Wachovia.

Economic data released prior to today's opening bell had the Commerce Department reporting that higher gasoline prices had retail sales rising by 0.2% in March, while sales excluding automobiles rose 0.1%. Economists were looking for total retail sales to be unchanged from February's upwardly revised 0.4% decline, with sales (ex-autos) rising 0.1% from February's upwardly revised 0.1% decline.

A look inside the numbers had gasoline sales providing the bulk of the increase with a 1.1% jump, while sales at department and general merchandise stores fell by 0.6% in March.

In other economic news (10:00 AM EDT), the Commerce Department said that inventories held by business on shelves and backlots increased by 0.6% to $1.46 trillion in February after a larger 0.9% gain in January. Year-over-year, business inventories are up 5.2%.

February to January Business Inventories (Table)

As inventories rose 0.6% month-over-month, sales fell by 1.1% to $1.142 trillion. While sales were down for the month of February, they were up 6.7% from year-ago.

Banks were weak and with the S&P Bank Index (BIX.X) 223.48 -4.54% trading sharply lower after Wachovia (NYSE:WB) $25.55 -8.12% said it will raise $7 billion in fresh capital by selling $3.5 billion in common at $24/share and $3.5 billion in preferred stock with a 7.5% dividend that convert into stock at a 30% premium.

Wachovia (WB) - Daily Intervals

Additionally, the bank said it will look to save another $2 billion a year by cutting its dividend 41% to $0.375/share from $0.64/share. The bank said it posted a 1Q net loss of $350 million, or $-0.20/share caused by $2 billion in market-disruption losses and sinking credit quality. Wall Street was looking for the bank to post a profit of $0.40/share.

Wachovia was atop today's list of most actives, churning just more than 172.5 million shares, which is well above its 50-day average volume of 35.8 million shares.

Wachovia's Chief Executive Ken Thompson said that the fresh capital will be enough to cover the bank's needs and more through 2009 even if Wachovia's worst-case scenario for the housing market proves true.

Wachovia's earnings report creates further angst for the financial sector with Dow Industrial components JP Morgan (NYSE:JPM) $41.50 -2.42% and Citigroup (NYSE:C) $22.51 -3.63% set to release their recent quarterly results on Wednesday (4/16) and Friday (4/18).

Financial SPDRs (AMEX:XLF) - Daily Intervals

Also attributing to weakness in the financial sector as depicted by the Financial Select SPDR (AMEX:XLF) $24.54 -2.34%, which approaches its January 22nd relative low was comments out of Lehman analyst Jason Goldberg regarding Bank of America (NYSE:BAC) $35.58 -3.68%. Mr. Goldberg said he expects Bank of America's 1Q earnings to continue to be weighed down by collateralized debt obligation-related write-downs (CDO), as well as a heightened loan loss provision.

Bank of America (BAC), which was recently added as a component to the Dow Industrials is slated to release its recently completed quarterly results next Monday (04/21).

Other notable financial names slated to release their recently completed quarterly results this week had Well Fargo (NYSE:WFC) $27.20 -2.75% shedding $0.77 ahead of Wednesday's earnings, while Merrill Lynch (NYSE:MER) $42.88 -1.83% edged down $0.80 with earnings slated for Thursday.

The XLF was the fourth-most heavily traded security behind Wachovia (WB), the S&P Depository Receipts (SPY) $132.93 -0.33% and General Electric (NYSE:GE) $31.75 -0.93%, which nears its recent 52-week low close of $31.70 from 03/10/08.

DIA and SPY Chart Montage - Daily Intervals

While component weightings for the Dow Diamonds (DIA) and S&P Dep. Receipts (SPY) are much different, their daily interval bar charts look very similar.

Energy names in both indices continue to provide the bulk of these two major averages gains with Exxon/Mobil (NYSE:XOM) $89.70 +1.21% gaining $1.08 on the session, while Chevron (NYSE:CVX) $89.30 +0.56% added $0.50/share.

May Crude Oil futures (cl08k) settled at a new record, finishing up $1.62, or 1.42% at $111.76 on supply disruption concerns.

American Depository Receipts (ADRs) of Brazil's Petroleo Brasileiro (NYSE:PBR) $122.18 +8.26% reversed earlier session losses from $110.92 on heavy volume of just over 36.6 million shares (50-day Avg. Volume= 8.12 million) on reports that an offshore find by the state oil company in partnership with BG Group and Repsol (NYSE:REP) $43.33 +17.04% may be the world's biggest discovery in 30 years.


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Brazil's head of the government's oil and fuel market regulator Haroldo Lima told reporters the find, known as Carioca, could contain 33 billion barrels of oil equivalent, five times the recent giant Tupi discovery. That would further boost Brazil's prospects as an important world oil province and the source of new crude in the Americas.

International Business Machines (NYSE:IBM) $117.28 +1.10% crept back above its 80.9% retracement (10/11/07 high to 1/11/08 low) ahead of Wednesday's earnings.

Having witnessed the sharp decline in shares of GE last week, I'd strongly suggest IBM bulls take some profits even though the firm offered bullish guidance earlier this year at the $110 level.

IBM is the most heavily weighted component in the PRICE-weighted Dow Industrials index of 30 stocks. (Top 10: IBM, XOM, CVX, MMM, BA, CAT, PG, UTX, JNJ and KO).

IWM and QQQQ Montage - Daily Intervals

Buyers stood their ground to the close in the iShares Russell 2000 (IWM) at my 19.1% conventional retracement, but not unlike the DIA and SPY have slipped back below their 50-day SMA.

Big caps at the NASDAQ as depicted by the QQQQ once again slip back below their 19.1% conventional, but exhibit some sign of relative price strength with a close above their more intermediate-term 50-day SMA of $43.82.

Aggressive bulls can play both at current level, while more conservative bulls will look for DIA and SPY to trade their upward trends (currently $118.70 and $128.80).

Additional stock-specific news had Blockbuster (NYSE:BBI) $2.81 -10.22% making a $1.billion offer for Circuit City Stores (NYSE:CC) $4.97 +27.43% for at least $6 a share, a 54% premium to Friday's close. Blockbuster projects a 1Q profit and says its turnaround is generating results.

Industrial manufacturer Eaton Corp. (NYSE:ETN) $80.03 +1.38% reported earnings of $247 million, or $1.64 a share, in the first quarter of 2008 as acquisitions helped drive net sales up 12% amid continuing strong international sales. The company raised its full-year earnings outlook saying it now see 2Q net of $1.80-$1.90, or $1.90-$2.00 a share excluding charges and full year 2008 EPS to $7.30-$7.80 per share.

One today's Treasury auctions had the U.S. Treasury awarding $22.00 billion in three-month bills at a high rate of 1.060%.

The Treasury said it received bids totaling $63.63 billion and accepted $22.00 billion, including $1.57 billion of noncompetitive tenders. The dollar price was 99.732056 and the investment rate, or bond-equivalent return, was 1.078%.

The Treasury also sold $25.0 million of bills to foreign and international monetary authority accounts on a noncompetitive bidding basis.

The bid-to-cover ratio, an indication of demand, was 2.89, Treasury said.

Tenders submitted at the high yield were allotted 98.78%.

The median rate was 1.050%; that is, 50% of the amount of accepted competitive bids were tendered at or below that rate.

Of the competitive bids accepted, 5% were tendered at or below the rate of 0.990%.

The 13-week Treasury Yield ($IRX.X) did see a low trade of 1.00%, but finished down 8.5 basis points at 1.075%.

The Federal Reserve purchased $4.89 billion in bills for its own account in Monday's three- and six-month bill auctions. When the auction was announced, the Fed held $7.61 billion of maturing bills.

The bills awarded to the Federal Reserve are in addition to the public offering amount.

Accepted indirect bids for the three-month bill were 54.9% of the total competitive amount, up from 25.5% in last week's three-month auction.

The high rate was up from 1.450% at the previous three-month bill auction.

The high rate was the lowest since the rate of 1.05% on May 24, 2004.

The issue is dated April 17 and matures on July 17, 2008.

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